I am doing historical scenario analysis in order to calculate stressed VAR for which I have taken 2007-2008 US crisis. I have two question in this regard:-

1) As we have to take prices for stocks with higher volatility during 2008 crisis, what if one of the stocks in my portfolio was not available or the prices were not available during that crisis? What we have to do in that case? Do we have to ignore that stock? Please suggest me for the other asset classes also like for bonds.

2) What market exposure I need to take for the respective asset class. I mean do I have to take calculated exposure during the 2008 crisis or the the today's market exposure?

P.S - I am using variance covariance matrix model for my calculation of VAR as well as stressed VAR.


1 Answer 1


For stocks that do not have enough data during a historical period one approach would be to use a proxy (i.e. beta * proxy returns - in case that proxy returns = 0, then your proxy is cash). Depending on the weight of the asset in you portfolio, excluding the asset from the analysis may not be a good idea even if there isn't a perfect proxy for the particular asset.

Regarding the market exposure that you should use this is the current one (i.e. current weight of your assets rather than current # of shares). In portfolio construction you think of $$$ allocation rather than shares.


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